What consequences might an attorney face if she allows her client to deliberately disregard a court order? A recent decision by Justice Sherwood held that civil contempt is not an appropriate sanction for such complicity so long as the attorney herself did not engage in conduct that violated a court order.
In A&F Hamilton Heights Cluster, Inc. v Urban Green Mgt., Inc. (653038/2014), an action seeking damages for alleged mismanagement and to determine ownership and control of a partnership, Justice Kornreich, prior to her retirement, appointed a receiver and managing agent for the partnership’s five rental properties in West Harlem. Justice Kornreich ordered that the partners and their agents cease collection of partnership receivables and turn over all partnership money to the receiver. Justice Sherwood took over the case in July 2017.
Prior to appointment of the receiver, an interrelated group of entities and their affiliates had managed the properties—referred to here as “Partner A” and “Partner B.” Partner A brought a motion seeking imposition of fines and imprisonment for civil and criminal contempt arising from Partner B’s, Partner B’s attorneys’ (Tendy Law, “Tendy”), and the property management agent retained by Partner B (“Managing Agent”)’s, failure to comply with the court’s orders concerning cessation of partnership receivables and turnover of money to the receiver. The court stated the relevant standard for civil contempt as follows:
To establish civil contempt based on an alleged violation of a court order, the movant must establish, by clear and convincing evidence, that a lawful order of the court expressing an unequivocal mandate was in effect, and that the order was disobeyed to a reasonable certainty (see In re Department of Envt’l. Protection of City of N. Y. v Dep’t of Envt’l. Conservation of State of NY, 70 NY2d 233 ; In re McCormick v. Axelrod, 59 NY2d 574, amended 60 N.Y.2d 652 ; Vujovic v Vujovic, 16 AD3d 490 [2d Dep’t 2005]). The party to be held in contempt must be shown to have had knowledge of the order, and the disobedience must have prejudiced the rights of another party (see McCain v Dinkins, 84 NY2d 216 ; In re McCor11ack, 59 NY2d 574; Garcia v Great Atl. & Pac. Tea Co., 231 A.D.2d 401 [1st Dep’t 1996]).
In a decision dated November 2, 2018, the court granted the motion. The court found that Partner B and the Managing Agent had “engaged in a pattern of conduct contrary to the direction of the court,” including continuing to collect rents, withholding funds in the partnership account, paying itself fees using partnership funds, and eventually transferring the partnership account’s balance to Partner B. Because these actions comprised a longstanding, repeated pattern of conduct, the court rejected Partner B’s and the Managing Agent’s defense that the transactions were “complex” and that payments had been made “in error.”
As for Tendy, the court found it “complicit” in Partner B and Managing Agent’s disregard of the court’s orders concerning cessation of partnership receivables and turnover of money. In particular, Tendy had “feigned a need for guidance” from the court and sought permission from the court to allow Managing Agent to return funds to Partner B. Tendy also misrepresented to the court the amount remaining in the partnership’s account. In light of the receiver’s multiple complaints concerning Partner B’s and Managing Agent’s disregard of the court’s orders, the court found that Tendy had, at best, “engaged in studied indifference to the contempts of their client and its agent.” However, notwithstanding such complicity, the court declined to hold Tendy in contempt, because Tendy had not violated any court order.
The court’s order raises questions concerning an attorney’s obligations when its client refuses to comply with a court order. Though Tendy avoided liability by failing to take an active role in withholding funds from the receiver, its indifference to its client’s misconduct did not escape the court’s approbation. Counsel finding themselves in such circumstances would thus be wise to tread carefully.
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